As gun companies fight to survive an onslaught of city lawsuits and renewed interest in gun control, they have encountered yet another powerful adversary--their own insurers.

With cases against the industry going forward in 28 cities and states, the legal defense costs already are in the millions of dollars and climbing. Gun companies, like any insured business, looked to their insurers to pay for their defense and contribute to any necessary legal settlements or judgments.

But many firearms makers and sellers have been notified by their insurers that they have no intention of paying what could be astronomical legal bills or any judgments associated with the suits.

Separately, a number of smaller gun companies that had trouble getting insurance in the first place have discovered that their insurer, Leeds & London Merchants Insurance, was not licensed to sell insurance in many states and is now going out of business. Several of the companies Leeds & London insured have filed for bankruptcy protection from creditors. Now that Leeds & London is also going out of business, that leaves individuals who've sued those companies in product liability cases little hope of ever recovering damages.

Several lawsuits already have been filed by industry members against their underwriters in what some gun company officials say could be the beginning of an all-out war between insurers and gun companies.

"It'll bankrupt them all," said Daniel Abel, an attorney in the Safe-Gun Group, an organization of New Orleans lawyers suing gun companies. "If the insurers walk away from the gun companies, they are looking at defending themselves in 28 major lawsuits."

The insurance issue is "crucial," said Robert L. Carter, an insurance coverage lawyer at McKenna & Cuneo in Washington. "The gun companies are right now looking at the tobacco litigation and asking whether their companies are viable. . . . Insurance is the last safe harbor for the gun companies."

In September, Maryland's Beretta U.S.A. Corp. sued its insurer, Chubb Corp., in federal court in the Northern District of Maryland after Chubb refused to contribute to Beretta's defense. The National Shooting Sports Foundation also sued Nationwide Mutual Insurance over its refusal to pay the industry association's defense costs in a case pending in New Orleans. In that case, the judge ordered the insurer to pay.

Gulf Insurance of New York has stopped writing policies for gun companies, and Frontier Insurance said it no longer will be a player in insuring gun shops.

Insurance for gun companies will become scarcer and more expensive, said Robert Hartwig, vice president of the Insurance Information Institute in New York.

"It's very difficult to find insurance when your industry is in the midst of a crisis," Hartwig said. "It's like trying to insure a house when it's in the path of an oncoming hurricane."

Hartwig said that some insurers are active in defending their gun company policyholders, although he wouldn't say which ones. Others, he said, are denying coverage.

"Many gun distributors and manufacturers are hoping that judges will say insurers should come to their aid," he said, adding that he doesn't think that one can assume that the coverage will be there.

The insurance question has come up much more quickly for gunmakers than it did in lawsuits brought against tobacco companies, in part because gun companies' profit margins tend to be thin and they are much, much smaller than the behemoth tobacco firms.

Tobacco companies spent $600 million a year on legal costs during years of product liability lawsuits that led to class-action suits brought by cities and states. Carter, who has studied the insurance issue in the tobacco litigation, said that he ultimately expects the 1,400 insurers who represent tobacco firms will have to pay out in excess of $20 billion for legal fees and settlements in the case.

However, Carter said, the asbestos cases are more closely related to the gunmakers circumstances. In some of the asbestos lawsuits, the company's insurer ultimately went out of business because they had to pay to defend the firms. But many of the asbestos companies survived to go into other businesses.

Gun companies have always found it difficult to get insurance because of the nature of their products. Many of the big gunmakers are self-insured by a Bermuda company, Sporting Activities Insurance Ltd., which was set up expressly for gun manufacturers, who sit on its board. The firm insures about 25 gun companies. But even the firm will not guarantee that it will pay to defend its clients.

"Some are going to be covered, some are not," said David Pickering, a director and spokesman for Sporting Activities. The firm provides product liability coverage, but not general liability policies, he said.

Some gun control advocates see the insurance issue as a plus in getting gun companies to try to avoid litigation and agree to make changes in the industry.

The insurance problem is "one more thing to bring them to the [settlement] table," said Josh Horowitz, director of the Firearms Litigation Clearinghouse, which tracks the lawsuits against gun companies and aids cities in their suits.

But some manufacturers say they won't let the insurance issue force them into a settlement.

"Gun distributors won't carry your product if you don't have insurance," said Tom Deeb, owner of Hi-Point Firearms, who's insured by Sporting Activities. As for whether his legal bills will be paid, he said he had not received an answer from his insurance carrier.

"Even if they did, I'm named in 15 lawsuits. So the deductible would be $25,000 per incident, or $375,000," he said. For some gunmakers, the deductible per case is as high as $1 million.

"I don't have general liability insurance," Deeb said. "I tried to get it for a year and couldn't."

A few months ago, Deeb said he was seriously considering going out of business because of the lawsuits, but has since changed his mind. "I think what they're doing is wrong," he said of the mayors and gun-control groups that support the lawsuits. "Even if it breaks me, I'm going to stick it out and do everything I can to keep my people working."

Many gun company officials are watching Beretta's case against Chubb closely.

"I've spoken to a number of manufacturers, and their insurers have reserved their right to deny coverage," said Finley Harckham, an attorney for Beretta.

A spokesman for Chubb declined to comment on the case.

In addition to the city lawsuits that have focused on gun companies, there are numerous product liability cases that have been filed by individuals against gunmakers, claiming that guns went off when dropped or were in some way defective. Gunmakers also depend on insurers to defend them in those cases.

Howard Holladay, 71, a U.S. agent for Leeds & London, insured many small gunmakers who had difficulty getting insurance elsewhere. He went to the annual Shot Show where gunmakers ply their wares to distributors and retailers every year, befriending the owners of small gun companies and selling them insurance. Though the name of the company Holladay represents is strikingly similar to Lloyds of London, the huge British insurance conglomerate, Leeds & London is actually registered in Costa Rica, according to court documents.

One of the companies Holladay sold insurance to was American Derringer, a small, Waco, Tex., firm that makes expensive derringers.

When the company ran into financial trouble, in part because of product liability lawsuits, Holladay encouraged the owners to file for bankruptcy.

"He told me 'You should just file for bankruptcy and these lawsuits will go away,' " said Elizabeth Saunders, owner of the company. "Well, they don't go away."

Saunders reported Holladay to the Texas Board of Insurance for operating in the state without a license to sell insurance.

Among other companies, Holladay insured two California gunmakers--Lorcin Engineering Co. and Davis Industries Inc. Lorcin reorganized under bankruptcy laws only to go out of business in California earlier this year. Davis is operating under Chapter 11 bankruptcy protection.

Both companies had numerous product liability claims pending against them that they told the court were covered by Leeds & London. Some of Lorcin's lawsuits were settled, others are pending, according to the bankruptcy court in Riverside, Calif.

But plaintiffs' lawyers who have sued Lorcin in recent years said their investigation showed that Leeds & London had a capitalization of only $80, according to court documents, and is not registered in any state in the United States. The reason that states license insurers is to provide financial backup in case the insurer goes out of business.

For those who have filed product liability claims against gun companies that have filed for bankruptcy protection, the insurance issue is central to whether they will ever collect money for their injuries or deaths of family members.

"We've ruled them out," said Harry Gregory of any insurance assets from Leeds & London. Gregory, a personal injury lawyer, sued Lorcin on behalf of a man whose allegedly defective Lorcin gun went off and killed him, leaving two children behind. "It's a scam. . . . We can't find them. We went to the address in Costa Rica. There's nothing there."

Gregory's office recently was notified by a Bahamas liquidation firm that Leeds & London "has suspended operations effective September 1, 1999." The liquidator, Ryan & Co., did not return a reporter's calls requesting comment.

"We don't insure gun companies per se," said Holladay, reached in Boston. "We're a private organization. We don't give out interviews," he said, declining to answer any further questions.

Holladay, whose insurance concerns also cover amusement rides and other hard-to-insure entities, signed a cease-and-desist order with the Maryland Insurance Commission in 1994 after a Labor Department inspector found that a traveling amusement show was insured by Leeds. But since Leeds was not licensed in Maryland, the insurance certificate was invalid.

Holladay also agreed not to sell insurance in Canada.

"The only thing worse than a gun company not having insurance is claiming you have insurance," said Gregory, whose clients' only recourse will be to sue the liquidated estate of Lorcin.

Meanwhile, James Waldorf, former co-owner of Lorcin, has started a new gun business in Nevada.